Search ForexCrunch
  • USD/CAD reversed a mid-European session dip to fresh multi-year lows.
  • Weaker oil prices undermined the loonie and helped limit the early fall.
  • The USD drove some haven bids and extended some additional support.

The USD/CAD pair quickly recovered around 30 pips from the mid-European session dip to the lowest level since May 2018 and has now moved back closer to the 1.2800 mark.

Crude oil prices added to the overnight losses and remained depressed through the first half of the trading action on Tuesday amid growing worries about a sharp rise in new coronavirus cases. This, in turn, undermined demand for the commodity-linked currency – the loonie – and extended some support to the USD/CAD pair.

Meanwhile, COVID-19 jitters overshadowed the recent optimism over a vaccine rollout and additional US fiscal stimulus measures. This was evident from a weaker tone around the equity markets, which drove some haven flows towards the US dollar and assisted the USD/CAD pair to find some support near the 1.2770-65 region.

Despite the supporting factors, bulls lacked any conviction and the USD/CAD pair remained well below the overnight swing highs. This warrants some caution for bullish traders and makes it prudent to wait for some follow-through buying before positioning for any meaningful recovery ahead of the BoC policy decision on Wednesday.

There isn’t any major market-moving economic data due for release on Tuesday, either from the US or Canada. Hence, the broader market risk sentiment and the US fiscal stimulus measures will influence the USD. This, along with oil price dynamics, will be looked upon to grab some short-term trading opportunities.

Technical levels to watch